Discounting a Stanby Letters of Credit (SBLC) an a Non Recourse Basis
A Standby Letter of Credit by itself does not trigger a payment at maturity. It is merely a guarantee on standby during the life circle of the instrument, but not a payment promise at maturity. However where a payment instrument is available e.g. a Bill of Exchange or a Promissory Note and non-payment is secured by a Standby LC, then discount the Bill of Exchange or the Promissory Note can be considered on a non recourse basis with the SBLC guaranteeing in the event of a default.
This will require the Standby Letter of Credit to be issued directly in favour of our funding entity, or the beneficiary of the Standby Letter of Credit will have to assign the SBLC. Such an assignment will have to be acknowledged by the Issuing Bank. Discounting of a Standby Letter of Credit is available if a scenario is established that can clearly trigger payment of the SBLC in case of a default. Such a default can be evidenced if there is a default of payment of the Bill of Exchange, or the Promissory Note at maturity which then would trigger payment of the Standby Letter of Credit.
Under TRADEFINANCE2020 it is essential that (1) the importer’s bank is willing to issue a Letter of Credit, a DLC or an SBLC for the client. This is the basis for this non-recourse funding model. (2) The importer and his bank have to be located in one of the countries which are on “our list”. (3) The issuing bank does not have to be TIER 1, but acceptable. If the bank is not acceptable, possibly due to country risk, their European counterpart might have to endorse the instrument. (4) The exporter/seller and the importer/buyer will have to be established companies with a track record of at least 3 years. (5) Tenor can be up to 5 years and rates are generally in the low 6% per annum with a set-up fee of around 0,5% all depending upon the credit risk evaluation of the exporter and the importer. To find out if and how your transaction qualifies and under which final terms, please submit the Evaluation Form which you can download HERE.
Wishing you a very Merry Christmas surrounded by your precious family, and sending you all the best Irish blessings for the coming year. We are at your service again starting from January 2, 2020 bringing you the very best structured trade finance solutions.